The New Concern with Bitcoin

November 23, 2018

Bitcoin has seen massive growth over the past few years or so, mostly due to the ease with which it makes transactions possible. There is no middleman, and it helps eliminate the need for an extra payment for taxes while running a number of transactions.

The blockchain is the fundamental software that bitcoin works on and it is known to be stable and reliable. However, a lot of investors are starting to feel that the “perfection” surrounding bitcoin may not be as flowery. It’s always better to inform and equip yourself with the knowledge surrounding a new investment to be on the safer side.

Here are a few concerns that bitcoin can bring up:

Wallet Vulnerability:

Bitcoin wallets have a real vulnerability towards hack attacks as well as theft. A team of researchers from Edinburgh discovered weak spots in these online wallets that could be exploited. The encrypted wallets are still susceptible to external attacks, and it’s important to be wary of the same.

Scientists were able to intercept any communication between the wallet and PC, thus syphoning off information and even diverting money to different accounts.

Cyber-Attacks and Hacking:

Bitcoin is always at risk of being attacked by cybercriminals. There have been attacks prior, and the value has slumped. The fear of losing a heavy investment online and not knowing about it is also a major fear in the mind of many investors.

Hackers have been trying to get into Bitcoin exchange systems for years now, and in 2014, they ended up being successful after syphoning off close to 850,000 bitcoins. The value of the same today would be a gargantuan $7.2 billion.

Single Client Mining:

There are certain mining pools which have become strong enough that they can command their own mining ratios, which are significant. This stems from the continued use of the proof-of-work consensus mechanism.

A pool can also use computational power to mine blocks of bitcoins and then hide it from many honest miners. This is called block withholding, and it prevents a new block from being broadcasted throughout the network.

The pool also attempts to find more blocks and the others are left in the lurch. Greedy miners find a new block before other miners and then broadcasting the two blocks they have makes the forked chain extremely long. These miners will always be a step ahead of the others, taking the lion’s share of the rewards.

Spending Double:

While there have been reinforcements to help control double spending. There is still a fear that concerns the risk to bitcoin. It has become stronger against any co-ordinated double spends online.

There are still people who can constitute attacks to help them benefit from twice utilising the same coin in a transaction.

Take, for example, Tom sending Bob x bitcoins for a transaction. Tom also executes a similar transaction at the same time to a certain address that he controls with the same bitcoins, x. While Bob believes Tom has sent the money and doesn’t confirm the same, Tom’s address has been credited, and the transaction doesn’t go towards Bob’s name.

Conclusion:

Then the feature of irreversibility causes the transaction to become invalidated and pointless. Since bitcoin is also unregulated, there ends up being no recourse.

Thus, bitcoin has always been a major source of debate among many financial technology advisors. While the technology behind it is revolutionary, its own identity is still murky without a clear route on its future. If you’re looking to invest in bitcoin, it is highly suggested that you speak to an expert and get all your doubts cleared before moving forth and making any investment.